Lenders and brokers have warned that the government’s crackdown on residential SMSF borrowing will strip demand from developments and leave retirement plans in limbo.
Non-bank lenders and brokers have said the government’s decision to shut down new residential limited recourse borrowing arrangements (LRBAs) inside self‑managed super funds will choke off a key source of funding for new housing.
The residential LRBA ban was announced last week as part of Labor’s agreement with the Greens to secure support for its capital gains tax and negative gearing changes in the Senate.
SMSFs will no longer be able to use borrowings to buy residential property, with existing LRBAs being grandfathered and commercial SMSF borrowing remaining on the table.
Firstmac flags direct hit to new supply
Brisbane‑based non‑bank Firstmac outlined how tightly SMSF lending is tied to new housing, with its CEO Marie Mortimer saying that around one‑fifth of the lender’s SMSF book supported brand‑new stock.
“Approximately 20 per cent of our SMSF lending is to new developments/off the plan. This translates into about 1,500 SMSF loans per year,” she said.
“But any projects that have SMSF presales won’t go ahead. It is not possible to see anything else that could replace it in this legislative climate. That’s why proper consultation needed to be done before rushing these changes through.”
Mortimer said the effect was not limited to the super cohort alone, adding that projects that no longer stacked up financially would take other buyers down with them.
“We expect the ban to result in a sizeable reduction in new housing supply. The effect is magnified as, if a development fails due to lack of SMSF, then it is also the non-SMSF purchases that don’t proceed either,” Mortimer said.
“You cannot build two-thirds of a building. Australia needs all the help it can get with housing supply. We don’t have time to trial and error this.”
Middle‑income borrowers and retirement plans in the frame
Mortimer said that many SMSF trustees using LRBA structures were not high‑net‑worth investors – but rather borrowers leaning on super as their only realistic deposit source.
“SMSF borrowers are not wealthy people. They are people who do not have a deposit outside of super and are unable to purchase a home,” she said.
“SMSF borrowing offers their only hope of buying a home for their retirement. This change will consign a segment of the community to being lifelong renters.”
Mortimer further challenged the notion that SMSF residential lending was a weak point in the system’s risk profile.
“SMSF borrowers have an almost-zero default outcome,” she said.
“The banning of SMSF by contrast will force these people to consider forms of investment such as commercial property that they may not understand – this may present a riskier proposition for them.”
She said that the combination of the tax package and the ban could reshape competition.
“The overlay of the budget changes around negative gearing and CGT, coupled with the SMSF Ban, is likely to reduce the size of the non-bank financial industry by around one-third,” she said.
“This diminishes the critical role that NBFIs bring in holding Banks accountable through competition.”
Pepper, Bluestone, and RedZed see pipelines squeezed
Other non‑banks with substantial SMSF exposure are painting a similar picture of disruption.
Barry Saoud, CEO of mortgages and commercial lending at Pepper Money, said the proposed changes amounted to “a meaningful shift in the market”.
“There are transactions across the pipeline – signed contracts, approved loans and scheduled settlements – now facing a compressed time frame,” he said.
“These deals reflect real customers who have committed and incurred costs under a well-established framework, and clear guidance is needed on how these borrowers will be supported through the transition.”
He also emphasised the role SMSFs play in long‑term retirement planning.
“For many, these structures form part of a disciplined, long-term strategy to build financial security and support a comfortable retirement, particularly as Australia’s population continues to age,” Saoud said.
Bluestone Home Loans head of specialised lending, Richard Chesworth, said the lender also expected some tightening in project viability.
“Off-the-plan activity represents a portion of this flow rather than a dominant share,” he said, before warning that “a reduction in this cohort could, at the margin, tighten presale coverage for some projects”.
Chesworth said Bluestone was seeing a tactical response from brokers as the 10 August deadline approaches.
“We’re seeing a short-term increase in applications from brokers representing SMSF borrowers looking to lock in and close out active deals ahead of the deadlines,” he said.
He also highlighted the underlying strength of the borrower segment that was being shut out of residential purchases.
“SMSF borrowers, across both our residential and commercial portfolios, are typically well capitalised, take a long-term view, and operate with a clear investment mandate,” he said.
“This tends to translate into disciplined borrowing behaviour over the life of the loan, and a comparatively strong-performing segment with low levels of arrears and defaults.”
RedZed, which focuses on self‑employed borrowers, said the ban directly countered the government’s objective of boosting supply.
“On one hand, there is a clear government objective to increase housing supply; on the other, a funding mechanism that has supported part of that supply is being withdrawn,” the lender said.
RedZed reported heightened urgency to settle existing deals and, from a credit standpoint, described the SMSF resi segment as robust.
“We are seeing increased urgency from brokers and customers to progress transactions ahead of the August 10 change,” it said.
“Credit wise, SMSF borrowers have historically performed strongly. They are typically well-structured, well-advised, and demonstrate disciplined repayment behaviour.”
With new residential borrowing off the table, yet existing loans still able to be refinanced, RedZed said it expected more attention on restructuring.
“We are announcing a streamlined and easy refinance process for customers with existing SMSF lending who may wish to review to their current lending to what could be a lower interest rate,” it said.
Broker warns of demand shock for new developments
Mel Falanga, branch principal at Yellow Brick Road Home Loans Leppington, said his current pipeline included around 10–15 SMSF clients with pre‑approvals, with roughly half looking at newly built properties.
“I am actually talking to a developer who is trying to assist one of my SMSF pre-approvals with a purchase. Unfortunately it appears that the development will not become available within the 45 days so that will be a missed sale opportunity for the developer,” Falanga said.
“I have worked with a lot of developers in my current role and previous role at a big 4 bank and I know that SMSF purchases make up a significant number of presale activity.
“For the new developments, particularly high-rise developments coming to market what will be a big loss in terms of potential sales.”
Falanga expects the ban to act as a major brake on new housing starts.
“With less demand from investors (SMSF and individuals) then developers will delay building or not build at all,” he said.
[Related: Industry warns SMSF resi ban will choke new supply]
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